Broker Check

Recovery From the Bear Market

| March 26, 2020
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I hope this communication finds you and your loved ones healthy. A special thank you to any healthcare workers or any person at risk attempting to fight this terrible virus to keep everyone out of harm’s way.

After three attempts and five days of intensive negotiations, it has finally happened; the Senate has passed a massive $2 trillion COVID-19 spending bill that is particularly aimed at easing the economic impact of the outbreak; the House will most likely do the same on Friday, 3/27. This bill includes providing $1,200 checks to most Americans, $500 billion for industries, cities, and states, $367 billion in loans for small businesses, $150 billion for state/local stimulus funds, and $130 billion for hospitals. The largest economic bill in history was passed in the early morning hours after the DOW Jones Industrial recorded its largest one-day point gain ever, 2,112-points. Many speculate that the significant one-day rebound on Tuesday was largely due to investor optimism that Congress would ultimately succeed in overcoming differences and reach a deal. Although this is a step in the right direction, we must keep in mind that COVID-19 is still an imminent threat and that we all need to stick together to overcome this virus.

Bear markets are typically broken down into three categories: structural, cyclical, and event-driven. Structural bear markets are typically triggered by structural imbalances and financial bubbles (global financial crisis of 2008). Cyclical bear markets typically occur at the end of a business cycle (rising interest rates, impending recessions, and/or falling corporate profits). Event-driven bear markets are one-off shocks to the economy, such as wars, oil price crashes, and emerging market crises. As we know, the current market shock is due to an event-driven shock, not a decline due to structural or cyclical bear markets. Markets tend to bounce back at a much quicker pace after an event-driven bear market, such as a natural disaster or health crisis. The graph below shows the impact of structural, cyclical, and event- driven bear markets and how quickly the market tends to recover.

Over the past 30 days, the S&P 500 has gone from an all-time high to a three-year low. During that time period, we have also seen two of the five worst trading days in history. The other three days occurred during Black Monday and the Great Depression. Currently, we sit roughly at the same levels in the market as when President Trump took office at the end of 2016. We may not know when this historic sell-off will end and when we will hit the bottom, but we do know that it most likely will end. Volatile markets are inevitable, and it is the nature of the markets to show wide price fluctuations and heavy trading every so often. Staying invested and not paying attention to the short-term fluctuations, however, tends to reap the most rewards for the long-term investor. Fears of uncertainty and following the herd can ultimately hinder the possibility of positive returns. Being a long-term investor can help guard against these behavioral biases.

Over the past few weeks, we have spent most of our time talking about finance, portfolios, and investing. Although it is important to be concerned about your portfolio, staying alert about your health and the health of the ones you care most about is of the utmost concern to us at Private Capital Group. Above all else, the Private Capital Group team urges all our clients, families, and communities to stay up to date with CDC recommendations and follow the leadership of our publicly elected officials. We most likely will overcome this if we remain confident that brighter days are ahead. We urge all our clients to take a deep breath during these volatile markets. When markets are increasingly fluctuating, it is easy to discard your specific strategy and allow fear to dictate decision-making. A properly devised plan and a diversified portfolio leads to sound decision-making. We understand the dilemma of the current situation and remain confident that our economy and financial markets will most likely regain the losses. How long this takes depends heavily on virus containment.

Please do not hesitate to reach out to anyone at Private Capital Group with your questions or concerns.

Stay safe and healthy!

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Private Capital Group, LLC (“PCG”), or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Information contained in this communication is based on data gathered from what we believe are reliable sources. It is not guaranteed by PCG as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. Further, you should not assume that any discussion or information contained in this communication serves as the receipt of, or as a substitute for, personalized investment advice from PCG. To the extent discussed herein, investment indices are unmanaged and cannot be purchased directly. Historical performance results for investment indexes and/or categories are included for informational purposes only and generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PCG is neither a law firm nor a certified public accounting firm and no portion of the communication should be construed as legal or accounting advice. A copy of the PCG’s current written disclosure Brochure discussing our advisory services and fees is available upon request.
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